Ellaktor S.A. (ELLAKTOR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Ellaktor Group conference call and live webcast to present and discuss the Ellaktor Group first half 2022 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Efthymios Bouloutas, CEO, Ellaktor Group. Mr. Dimos Revelas, CFO, Ellaktor S.A.; Ms. Aphrodite Avramea, Head of Strategy; and Mr. Ioannis Mamakos, Investor Relations Officer. Mr. Revelas, you may now proceed.

Thank you. Good afternoon to all, and welcome to Ellaktor's conference call regarding the first half 2020 results. The press release announcing Ellaktor's financial and operating results for the first half of 2022, the interim consolidated financial information and the presentation were issued earlier this afternoon after the market closed. For those of you who haven't seen those, they are available on the Investors section of our website, www.ellaktor.com. On our call today, we will share with you the business update and review of our financial results, and then we will host the Q&A session. I would now like to turn over the floor to Mr. Bouloutas, our CEO.

Thank you very much, Dimos. Good afternoon, ladies and gentlemen. Thank you very much for participating in Ellaktor's first half 2022 financial results. For this presentation, we will follow the PDF that was present in our site earlier today. And I will start with Page #5, where I will remind you that on 6th of May of 2022, Motor Oil last proceed with an announcement that it has acquired approximately 30% stake in Ellaktor. And at the same time, Motor Oil has reached a new discipline framework agreement with Rechenberg Invest our other large investor, subject to customer conditions and regulatory approvals for the acquisition of 75% of the shares of the company to be established, which will own Ellaktor's RES. In that respect, and following a due diligence process and a fairness opinion obtained by the Ellaktor Board on August 1, it was decided by the Board of Ellaktor that we conclude this purchase agreement and a shareholder agreement with Motor Oil, Renewable Energy, which is a subsidiary of Motor Oil Hellas and the commencement of the process of the division of the company with the spin-off of the company's RS segment and its contribution to a newly company to be a new company that will be incorporated. Motor Oil's Board approved the conclusion of the above transaction documents on the 4 of August. On the 25th of August, we had an extraordinary general assembly of the shareholders of Ellaktor that approved the transaction for the transfer of the 75% of Ellaktor's RES sector to More and Motor Oil has scheduled an EGM on the subject on September 8. So just to remind you, with the transaction structure and economics Ellaktor will proceed with a high down of the RES sector to a newly incorporated company called SpinCo for the purpose of the presentation. And More and Ellaktor will jointly form a new company called Holdco, in which Ellaktor will hold the stake of 25% and More stake of 75%. More will cover its participation in HoldCo with cash, while Ellaktor will participate in HoldCo share capital by contribution in kind of approximately 14% of SpinCo's shares. Ellaktor then will sell and transfer the remaining SpinCo shares for cash consideration. HoldCo will merge with SpinCo through the absorption of the -- by the later and the total cash consideration for 100% of SpinCo shares, which is the equity value has been determined at EUR 794.5 million. The total consideration in terms of enterprise value amounts to EUR 994.1 million versus announced enterprise value of EUR 1 billion. Following the respective EGM approvals, the closing of the transaction is conditional upon any other regulatory approvals, including the approval by the Hellenic Competition Commission, and it is expected to be completed by year-end. Turning now to point to Page #6. Further business developments have been that Rechenberg has launched -- at the same time, on May 6 has launched a voluntary tender offer for the purchase of Ellaktor's shares for a consideration of EUR 1.75 per share in cash. This voluntary tender offer has been approved by the Hellenic Capital Markets provision and has run its course. And in -- on the 26 of July was completed. So Rechenberg's voluntary tender offer was completed successfully and shareholders standard approximately 54.4 million of shares or 15.6% of the company's share capital. And following the video completion, the main shareholder, Rechenberg Invest now holds directly or indirectly a stake of approximately 46.5% in Ellaktor. Furthermore, on August 1, Ellaktor Value, which is a fully owned subsidiary of Ellaktor announced an offer to purchase forecast, any and all of the outstanding senior secured notes due 2024 at a price of 101 of the aggregate principal amount plus the accrued the interest. This offer was triggered due to a change of control taking place as a consequence of the framework agreement entered into between Rechenberg and Motor Oil. The offer is valid until September 21, and Ellaktor will fund the purchase of the notes of the offer with financing facilities already committed by local banks and along with existing cash. Furthermore, due to Rechenberg's participation in Ellaktor that ended up being north of 33%, RB Ellaktor Holding announced on August 19, the launch of a mandatory tender offer for 22.8 million shares in red, representing the shares not owned directly or indirectly by the offeror including Ellaktor's stake or by persons acting in concert with the offeror. At the same time, an offering circular was filed with the Hellenic Capital Markets Committee and the price determined for the offer is EUR 2.48 per share in cash for every tender shares. And that completes, let's say, the corporate developments with the mandatory tender office, the tender offer for the high-yield bond and also the completion -- the completion of a major part of the RES sales process. Now we move to Page #7, and we will focus on the financial results of the first half. Given the prospective sale of the RES segment, the financial information for this segment is presented separately in accordance with IFRS 5, noncurrent assets held for sale and discontinued operations. So for comparison purposes, financial information for that segment is also presented as a part of Ellaktor group and as a discontinued operation. So the first bullet point is that the first half group revenue came in at EUR 479 million, out of which EUR 428 million comes from continuing operation, 22% higher versus the same period of last year, while exceeding the EUR 1 billion threshold on a last 12-month basis, of which EUR 894 million come from continuing operations. In terms of profitability, the first half 2022 group EBITDA came in at EUR 126 million on a comparable basis, out of which EUR 82 million from continued operations, up 65% versus the respective period of the first half of 2021 with a margin at 26%, higher by 7 percentage points versus the same period of last year. The reported EBITDA for the period is EUR 117 million, out of which EUR 73 million from continuing operations, higher 2.3x versus last year. Finally, the first half profitability. The pretax profit came in at EUR 31 million, out of which EUR 6 million from continued operation versus losses of EUR 48 million during the first half of 2021, while net income for the first half of the year stood at EUR 12 million, out of which losses of $7 million from continued operation versus losses of EUR 55 million in the first half of 2021. For the high-yield bond, we discussed the developments, while the net debt of the group is at the end of the semester, EUR 556 million, out of which EUR 367 million from continuing operations, down from EUR 578 at the end of 2021. Group cash and liquid assets at EUR 428 million, of which EUR 385 million from continued operation versus EUR 557 million at the end of December '21, excluding Moreas concession. Finally, net debt to EBITDA comparable for the last 12 months, multiplier, excluding Moreas concession, is at 2.6x. Operating cash flow for the first half of the year came in at positive EUR 42 million, of which EUR 13 million from continuing operations compared with outflows of $1 million during the same period of last year. In terms of financial results, the group revenue, the EBITDA for all activities can be seen itemized in Slide #8. -- where effectively you see that the revenue of all activities was positive versus last year, registering on the average, a very healthy growth of 22%, 25% in terms of continuing operations and itemized, every activity posted revenue growth, 29% for construction and concession, 1% for the environment, and we will explain why that is in a second, 4% on the RES, which is now a discontinued operation and almost 60% for the real estate, albeit from a smaller base vis-a-vis the other activities. In terms of EBITDA, all activities other than the environment reported healthy -- very healthy increase of 113% on the average again with a very big increase in construction and concessions. Concessions came in at 21% and on a comparable basis, 37%. We remind you that comparable versus the reported concessions difference by EUR 9 million, which is a charge relating to the January traffic disruptions in kid. On the environment business, second quarter results incorporate a provision for the retrospective adjustment regarding increased RES revenue compensated the day ahead market spot prices. which is 9.1% impact in revenue and EUR 7.9 million impact in EBITDA. On the left-hand side of the same page, you can see the graph with the EBITDA with the sales and EBITDA, where you see significant normalization versus the same period of last year. The company has completed a big part of the restructuring and is closing now in what is the true earnings potential of the group driven predominantly from changes in revenue. In terms of operating update, I would like I would like to point a couple of -- a couple of items, new projects of EUR 321 million were signed during the first half on the construction. That includes the Patra -- Pyrgos National Road, the stale operation and maintenance, the Corinth canal restoration works and the design, procurement, installation and commissioning of telecommunication and control systems in the Thessaloniki metro. The outlook is very healthy because the company's preferred bidder for additional projects worth approximately EUR 1 billion. All in all, the current backlog is EUR 2.8 billion compared with EUR 2.5 billion in December of 2021. And the EBITDA for first half of 2022 continues at breakeven, underpinning the turnaround that has been completed. In terms of concessions, traffic in all roads we operate was up approximately 30% for the first half of 2022 versus the same period of last year. And specifically, in [ Atikiovos ], the first half was higher by 2020, 28% vis-a-vis the same period of last year. On February 25, we've been announced preferred investor in Kalamata-Rizomylos-Pylos PVP. On March 18, we initiated construction works for the Patra-Pyrgos in Olbes -- on June 7 in -- we participate in the JV Acta concessions participation in the JV that has been announced the preferred investor in Work PVP. And finally, on August 5 and consortium of which Acta participates, submit an offer for the acquisition of a majority stake in the share capital of [ Portal authority ]. Again, here, during the rest of the year, we expect that various PVP, concession and privatization projects will be tendered, and we will participate in the majority of them. Finally, for the environment, we discussed about the profitability charge, the EBITDA charge that relates to both revenue and also profitability that is effectively a tax on the hyper profits as government calls it. There's a lot of ambiguity on how these are going to be implemented. However, for prudency purposes, we decided to take this charge. In terms of new businesses, we've discussed even with -- in March that we've been a preferred bidder for the ADCA clinical waste incinerator. And we also initiated the Cosan biogas electricity production, which is a new project of 1.2 megawatts, while we've been we've been named as a sole we were the sole bidder for the Marolia treatment plant upgrade expansion, which has a construction budget of EUR 5 million and an operation of 4 plus 4 years. And finally, we've been announced the preferred bid regarding the Milos waste management contract and the -- which has a capacity of approximately 300 tons per annum. With that, I would like to complete the operational update, and I'd like to turn the call over to Ms. Aphrodite Avramea for the -- to give you highlights our ESG activities during this quarter and last year.

Good evening. My name is Aphrodite Avramea, and I'm the Head of Strategy at Ellaktor Group. In the following few minutes, I'm going to briefly present our most recent ESG activity. In the beginning of July 2022, we released our sustainability report for the year 2021, which summarizes all of the group's CSG initiatives and achievements from the -- for the previous year. The report also describes our new ESG strategy and analyzes our strategic goals and action plans. The basic 2021 ESG figures and their 2020 equivalents are summarized in Slide 10. Further enhancing the last year's positive environmental impact, energy production from renewable energy sources increased by 10% to 1,380 gigawatt hours. This result was the combination of the increase in the average capacity and the enhancement in the capacity factor of our renewable energy products. Energy consumption, on the other hand, remained stable versus the previous year at about 250 gigawatt hours despite the increase in total turnover. And the pickup is the overall economic activity as the COVID-19 pandemic under the stabilization phase. This practically means that through our activities, we consumed just one fifth of the energy that we produced from renewable energy sources. At the same time, the amount of CO2 equivalent emissions prevented from our operations increased by more than 30% to 2.7 million tons, while the CO2 equivalent emissions produced by our operations decreased by 8% to 90,000 tons. That is we prevented 30x more CO2 equivalent emissions compared to the ones that we produce, increasing this figure from 20x in the previous year. 2021 as a year of governance reorganization and enhancement with female representation in all levels being further reinforced group-wide as has the percentage of women employees raised from 24% to 26%, managerial positions held by women increased from 17% to 18%, while Board same representation doubled to 43%. In the next slide, as mentioned, our ESG strategy was revised and informed always within our 5 strategic pillars and the aim to include as many of the SDGs as possible in our strategic goals. On the environmental front, our main strategic goals are the further reduction of GHG emissions and contribution to the circular economy. And for that purpose, we have put together a detailed strategic plan with specific actions. Our long-term aspiration is to eliminate waste produced by the group's activities by 2028 and to achieve net 0 by 2050. Other environmental goals concern the mitigation of climate change risks and the protection of biodiversity. We are in the process of creating road maps and designing specific programs in order to achieve these targets. Our social strategic goals focused on employees and the overall societies in which the group operates. As far as employees are concerned, enhancing their well-being, setting a culture of trading and self-improvement and focusing on health and safety while maintaining a safe and inclusive working environment are a top priority. Our strategic goals also involve further strengthening the ties with the society and the stakeholders by establishing solely channels of communication and embracing employee voluntaries. Further strengthening the governance structures that were significantly enhanced during 2021. The group will focus on supply chain-related issues preserving integrity and adopting corporate governance best practices. In addition, Ellaktor has set a detailed action plan in order to optimize operations and develop innovative products and services by leveraging our cutting-edge technology practices and opportunities. On the next slide, our ESG ratings are summarized. As you can see, overall, we enjoy satisfactory ratings and favorable rankings. So this was a brief overview of our ESG activities. I will now hand over the presentation to Mr. Dimos Revelas, the Group CFO, who will briefly present the group's financial highlights and first half 2022 results.